Types of Chargebacks

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Pre-Compliance Chargeback

Pre-Compliance Chargeback

Pre-Compliance Chargeback: What Happened to Reason Code 98?

A pre-compliance chargeback was once used to dispute chargeback issues between network members. Used in situations where an association rule had been violated, pre-compliance chargebacks were the “reason” behind Visa reason code 98. The methodology and conditions for using this option have changed considerably, however.

What is Chargeback Compliance?

To understand pre-compliance, we should first define “compliance” in this context.

Visa created the compliance process as an alternative way to help resolve situations where one network member had violated internal network regulations. Compliance generally comes into play after a dispute has been addressed. One or the other party disagrees with the outcome, but has no chargeback rights.

There are specific conditions under which the Visa compliance process can be initiated. All of the following must apply:

  • A violation of the Visa Core Rules and Visa Product and Service Rules occurred;
  • The violation is not covered by a specific dispute condition (reason code), representment or pre-arbitration right;
  • The network member incurred a financial loss resulting directly from the violation;
  • The member would not have incurred the financial loss had the regulations been followed; and
  • The pre-compliance attempt to resolve was not accepted.

In simple terms, “compliance” is only an option if one party feels the other party didn’t play by the rules, leading to a loss of revenue for the filing member.

The handling of compliance disputes can fall either on the issuing bank or the merchant’s processor. Issuers can initiate compliances against acquirers, and acquirers can file against issuers. It all depends who committed the violation, and the nature of the violation itself.

This type of case is outside of the normal chargeback process, so it doesn’t affect the merchant’s chargeback ratio. While damage was done with the original dispute, it won’t be assessed a second time.

Pre-Compliance Chargeback

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What Are Considered Compliance Violations?

There are numerous situations that could meet all the criteria listed above—and thereby qualify as compliance violations. For example:

  • The merchant continued to bill a cardholder without confirming that the signature on the transaction receipt matched the signature on the card.
  • The cardholder agreed to be charged at least once, but the merchant billed for multiple key-entered transactions without the cardholder’s authority (card-present environment).
  • A merchant/acquirer ignored a retrieval request issued for legal proceedings or law enforcement investigations.
  • The Visa dispute processing system prevented a valid dispute because a member provided invalid transaction data.

Compliance is used to challenge cases where a specific reason code does not exist. It gives either the acquirer or the issuer the right to file a complaint against the counterparty, in situations where a rule violation has caused a financial loss.

What is a Pre-Compliance Chargeback (Visa Reason Code 98)?

Once a violation is discovered, the filing party must give the opposing member a chance to resolve the issue. This stage is called pre-compliance (hence the term pre-compliance chargeback).

The idea here is for members to work things out between themselves, without the network’s input. If no resolution can be found, Visa will step in, review the available information, and decide who bears final responsibility for the transaction.

Members are required to comply with Visa’s decision; their only other option is to appeal the decision, which is a costly endeavor. Visa would much rather the situation be resolved before they have to get involved—in other words, pre-compliance.

So, how does reason code 98 (pre-compliance chargeback) affect this process? Simply put, it doesn’ least not anymore.

Remember, the whole point of pre-compliance is that it’s an option in situations where there is no valid chargeback, representment, or arbitration right. Chargeback reason code 98 used to collectively describe any exception that fell into that category. In short, the bank didn’t have a clear, specific coding option to describe why it wants to dispute this case.

With the implementation of Visa Dispute Resolution systems, reason code 98 eventually became obsolete. Now, compliance cases must be submitted through Visa Resolve Online (VROL).

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VROL is Visa’s official system for accepting data and communications regarding chargebacks. Visa mandates that processors and banks both use this system for multiple tasks, including challenging initial chargeback results (another way of saying “pre-compliance”).

The system is designe to process and exchange dispute information. Again, Visa wants members to use this data to resolve issues themselves, with no additional input from the network. With VROL and VCR in place, Reason Code 98 was no longer needed. Visa removed it to impel members to use the updated process.

Preventing Chargebacks is Better

Since pre-compliance cases are mostly handled by banks and processors, they shouldn’t be a merchant’s main focus—unless the merchant has broken the rules. In that case, they’ll need to review how the business is handling card payments.

Generally speaking, however, the best chargeback approach is prevention: although not all violations are identified from chargebacks, a chargeback can’t get to the compliance stage if it was never filed in the first place. That’s why a customized, multi-tiered chargeback mitigation strategy is so important.

Our experts at Chargebacks911® want to help you simplify the stress of confusing industry jargon. We can also customize a sustainable chargeback prevention strategy for your business, backed by our exclusive ROI guarantee.

Want to learn more, or have other questions about the pre-compliance chargeback process? Contact us today.

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